Ignite Restaurant Group, Inc. - University of Oregon Investment Group

Transcription

January 23rd, 2014
Consumer Goods
Ignite Restaurant Group, Inc.
Ticker: IRG
Recommendation: Outperform
Current Price: $6.98
Price Target: $8.70
Investment Thesis
Key Statistics
52 Week Range

IRG acquired Romano’s Macaroni Grill in April 2013, as the company saw
an opportunity to improve its performance. As IRG continues to revamp the
restaurant’s operations, its inclusion will prove accretive to IRG’s bottom
line going forward.

IRG’s acquisition of Romano’s Macaroni Grill further expands its real
estate portfolio, allowing the company to convert its restaurants more easily
and with a substantial cost savings.

Given the low number of current Brick House Tavern + Tap restaurants,
there is still a great amount of national growth, ultimately proving
beneficial to both IRG’s top line and bottom line.

IRG’s experienced management team and their remarkable track record will
allow the company to take the necessary steps to not only improve the
performance of Romano’s Grill, but continue to grow its Brick House
Tavern + Tap brand going forward.
$5.68 - $16.29
$7.72
50D M oving Average
Estimated Beta
0.74
Dividend Yield
0%
M arket Capitalization
188.38 M
3-Yr Revenue CAGR
27.62%
Trading Statistics
26.2 M
Diluted Shares
Average Vol.(3-M on)
One-Year Stock Chart
122.478 Th.
Instit. Ownership
98.90%
Insider Ownership
5.14%
$20.00
1800000
$18.00
1600000
$16.00
1400000
$14.00
EV/EBITDA
12.22
1200000
$12.00
1000000
Margins and Ratios
$10.00
800000
$8.00
Gross M argin
28.26
Net M argin
(1.11)
Debt to EV
0.57
600000
$6.00
$4.00
400000
$2.00
200000
0
$0.00
Jan-14
Mar-14
May-14
Volume
Covering Analyst:
Jul-14
Adjusted Close
Sep-14
50-Day Avg
Nov-14
Jan-15
200-Day Avg
Devon Eddings
eddings@uoregon.edu
1
University of Oregon Investment Group
January 23rd, 2015
Business Overview
Figure 1:
Joe’s Crab Shack Logo
Ignite Restaurant Group, Inc. ($IRG) is a restaurant conglomerate
company. Founded in 1991 and headquartered in Houston Texas,
IRG owns three restaurant brands: Joe’s Crab Shack, Brick House
Tavern + Tap, and Romano's Macaroni Grill.
Joe’s Crab Shack
Founded in Houston, Texas in 1991, Joe’s Crab Shack is a casual
seafood restaurant. The restaurant is primarily known for its laid
back atmosphere and its locations, which the majority of them are
situated on a waterfront property with patio seating. According to
IRG, “a visit to Joe’s [Crab Shack] is an event for the whole family.”
Given the quote, some Joe’s Crab Shacks even offer a children’s
playground as a way to achieve the company’s goal in creating an
environment that is fun and appealing to the common family.
Source:
Joescrabshack.com
Figure 2:
Brick House Tavern + Tap Logo
Joe’s Crab Shack was purchased by IRG from Landry’s
Restaurants, Inc. in November 2006 for a purchase price of
approximately $192 million. At the time, IRG saw an opportunity to
completely transform the Joe’s Crab Shack brand, as it was a
severely underperforming restaurant at the time of the acquisition.
The aspect that IRG focused on the most to revamp the Joe’s Crab
Shack brand was to create an experience that catered to its core
customer segment. This entailed: innovating the restaurant’s menu,
elevating its service, and enhancing its marketing plan. As of IRG’s
most recent filing, it owned 138 Joe’s Crab Shack restaurants across
33 states.
Brick House Tavern + Tap
Brick House Tavern + Tap is a casual bar and grill designed for the
average person looking to unwind and relax after a long day at work.
Unlike Joe’s Crab Shack, where a visit is considered an event, Brick
House Tavern + Tap is promoted as a place that is ideal for frequent
visits. Generally, these restaurants entail a modernized setup that
includes leather recliners and large high definition televisions so that
guests, who are often sports enthusiasts, can enjoy the day’s big
game.
As of IRG’s most recent filing, it owned and operated 21 Brick
House Tavern + Tap across ten states.
Source:
Brickhousetavernandtap.com
Romano’s Macaroni Grill
Founded in April 1988 by Philip Romano, Romano’s Macaroni Grill
is a casual restaurant focusing on Italian cuisine. Like Joe’s Crab
Shack, Romano’s Macaroni Grill is promoted and operated in a way
that is family and friend oriented. It is also a place where people visit
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January 23rd, 2015
Figure 3:
Romano’s Macaroni Grill Logo
to celebrate things such as a best friend’s birthday or a recent
promotion. To give customers a true Italian dining experience, the
restaurants feature stonewalls, brick-type ovens, and string lighting.
Romano’s Macaroni Grill was purchased by IRG from Golden Gate
Capital in April 2013 for a purchase price of approximately $61
million. For more details, refer to the Growth Strategies section on
page 7, as one of the main thesis points outlined above is based on
the acquisition.
Revenue Segments
IRG reports revenue from its three restaurant brands. Up until its
acquisition of Romano’s Macaroni Grill, IRG’s had no international
operations. As of its most recent annual report, IRG franchised a
total of 19 Romano’s Macaroni Grills across nine countries. As of
the most recent annual report, Joe’s Crab Shack, Brick House
Tavern + Tap, and Romano’s Macaroni Grill represented 58.9%,
6.8%, and 34.4% of IRG’s total revenue, respectively.
Source:
macaronigrill.com
Industry
Figure 4:
Chain Restaurants Industry Costs
100.0%
Other
19.0%
80.0%
6.2%
3.00%
3.9%
Rent &
Utlilities
Marketing
60.0%
28.9%
40.0%
20.0%
Depreciation
Purchases
32.4%
Wages
Profit
0.0%
Overview
The restaurant business is highly competitive. From a general
perspective, success within this industry is based on many different
macroeconomic factors as well as various input costs, such as
poultry and fish. Both the macroeconomic factors as well as the
input costs will be discussed shortly. A company’s overall ability to
attract and retain customers is also extremely important. Customers
base their dining decisions on many different factors including the
menu offering, the quality of the food, the service provided by
waiters/waitresses, and the average price of a meal. IRG specifically
competes within the chain restaurants industry.
6.6%
Source:
IBIS World Industry Report
Operations
There are several factors that characterize the chain restaurants
industry, and therefore are important to take note of. First is that
wages, which is considered an input cost, tend to represent a large
percentage of a company’s sales. On the contrary, cash outlay for
tangible capital is low relative to wages. On average, for every $.12
that is allocated to buildings and equipment, $1.00 is allocated to
wages. However, there are ways in which firms can reduce their
risk/exposure to wages. For instance, firms can invest in certain
technologies that allow part of the process to be automated, such as
electronic customer ordering systems. Point of sale systems are also
utilized as a way to speed up service.
Financial Performance
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January 23rd, 2015
Figure 5:
Product Segmentation
4%
4%
6%
American
Breakfast
9%
Italian
Other
51%
Seafood
11%
Specialty
Asian
15%
Source:
IBIS World Industry Reports
Macro Factors
As mentioned above, there are several macroeconomic factors that
inevitably affect the performance of this industry. Consumer
spending is among the most important factors to gauge, as this
metric could suggest how the industry is likely to perform in the near
future. In general, consumer spending and the performance of this
industry are positively correlated. Consumer spending is expected
to steadily rise given the job growth expectations as well as
normalizing credit conditions. More specifically, disposable income
is likely to rise as more consumers return to work, enticing them to
spend more money. Consumer spending is forecasted to increase at
an average annual rate of 2.6% over the next five years.
Closely linked to consumer spending is the Consumer Confidence
Index, which measures the level of optimism in the general
economy. This is judged by consumers’ activities of both spending
and saving. Like consumer spending, the Consumer Confidence
Index and the industry are positively correlated. Over the next five
years, consumer confidence is expected to recover as more people
return to work and regain a steady flow of income. The brighter
economic outlook is also expected to boost consumer sentiment
going forward.
Figure 6:
Consumer Spending
(% change)
4.0%
A common metric that is important and should be watched very
closely is the comparable restaurant sales growth. This metric
compares the sales of restaurants that have been open for a specified
period of time. Generally this period is a year. However, in IRG’s
case, comparable restaurants include those open for at least 104
weeks, or approximately two years. As of the last annual report,
there were 309 restaurants that were included in the comparable
restaurant base. Overall, this metric allows investors to determine
what portion of sales has come from sales growth and what portion
can be attributed to the opening of new stores.
Lastly, it is important to note that this industry is typically driven by
families that lack time to prepare a home-cooked meal, and that earn
more than $100,000 per year. Because of this factor, the growth in
the number of households that fit this description will be important.
The growth of such households is expected to increase during 2014
and 2015.
3.0%
2.0%
1.0%
0.0%
2010
2012
2014
2016
Source:
IBIS World
2018
2020
In sum, the industry is expected to improve and in line with the
general economy over the next five years given the positive outlook
for the macroeconomic factors that are mentioned above. However,
chain restaurants are expected to face increased competition from
other types of restaurants including both fast food restaurants and
fast casual restaurants. Given the rising competition, product
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January 23rd, 2015
development will be of high importance in order for firms to remain
relevant. Firms will continually need to innovate their current menus
and offer items that are attractive to their core customer segment.
Figure 7:
Consumer Confidence Index
Competition
As briefly mentioned above, this industry is extremely competitive
and is expected to increase going forward. Chain restaurants not
only compete with other chains, but they also compete with others
that serve the broader market such as ‘mom and pop’ restaurants,
coffee shops, and bars.
(% change)
16.0%
12.0%
8.0%
4.0%
0.0%
2010
2012
2014
2016
2018
2020
Source:
IBIS World
Barriers to Entry
The majority of competitors enter into the industry through
franchisor/franchisee agreements. This also brings another added
layer of competition as firms are competing with other firms in
regards to the location of their restaurants. From a simple supply and
demand microeconomic model, this will inevitably push up the price
of real estate holding supply constant. This is a safe assumption as
the recent economic downturn enticed real estate developers to hold
back on construction. Lastly, it is important to note that while
industry regulation is significant in terms of maintaining adequate
health standards and retaining certain types of licensing, it does not
create any insurmountable barriers to enter or operate within the
industry.
Figure 8:
Households earning more than
$100K
(% change)
0.80%
0.60%
0.40%
0.20%
0.00%
2010
2012
2014
2016
-0.20%
-0.40%
-0.60%
Source:
IBIS World
2018
Market Concentration
Over the last half-decade, conglomerate companies have been
selling the restaurant chains that have been underperforming their
peers to various private equity firms. As a result, the level of market
concentration has decreased slightly. Another reason for the
fragmented industry is the increase of franchising activity that has
taken place over the past five years. Many chains are beginning to
realize that there are greater profits to be made in collecting royalties
and other fees as oppose to buying and selling food and beverages.
As of the latest industry reports, the four largest players account for
about 26.4% of the available market share.
2020
Globalization
Most of the firms operate primarily in the United States.
International operations are likely to grow, however, given the
intensified competition that was mentioned above. Exactly where
companies take their restaurants, in terms of location, depends on
their areas of expertise and their food concepts and styles.
Depending on the exact locations at question, an international move
is likely a positive outlook for the industry. This is because direct
competition is lower in many emerging and high growth markets.
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January 23rd, 2015
Strategic Positioning
Figure 9:
Market Concentration
9.4%
Darden
Restaurants Inc.
8.2%
4.6%
4.2%
2.3%
DineEquity Inc.
Bloomin' Brands
Inc.
Briner
International Inc.
Differentiated Restaurant Brands
IRG has placed itself well within the industry, where all of its
restaurants are distinctively positioned brands that are designed to
have a unique guest appeal. More specifically, each restaurant brand
features different food offerings as well as an atmosphere that
attracts a diverse group of customers. As mentioned in greater detail
in the Industry section, the competition is extremely high within the
industry, and firms are not only competing amongst each other but
are also competing with firms that serve the broader market. What
IRG has effectively done is diversify its offering, reducing its
exposure to any one particular cuisine.
Memorable Guest Service
Cracker Barrel As mentioned in the Business Overview section, IRG really focuses
Old Country Store
on the memories that customers form when they visit its restaurants.
Inc.
Other
The goal of all three restaurants is to provide a unique experience
71.3%
Source:
Figure 10:
Competitive Statistics
Industry Competitive Statistics
Barriers to Entry
Low
Competition
High
Life Cycle Stage
Mature
Capital Intensity
Low
Globalization
Medium
Concentration
Low
Level of Technology
Medium
Source:
that is upbeat and inviting. As mentioned previously, Joe’s Crab
Shack is a place to take the entire family and enjoy food in a
vacation-themed environment. Brick House Tavern + Tap provides
a comfortable and modernized setup for a group a friends to enjoy
the many different varieties of beer offered while cheering for their
favorite sports team. Romano’s Macaroni Grill features opera
singers to provide entertainment for visiting customers. The reason
behind IRG’s push to provide a memorable guest service is twofold. First, customers who are entertained and have a good dining
experience are likely to come back. Second, IRG believes that its
guest service models provide an additional layer of brand
differentiation.
Scalability of Operations
The mere size and structure of IRG’s business allows the company
to scale its operations, improving its margins as well as its
profitability. While each of IRG’s three restaurants conducts its own
field operations, the company utilizes a common platform that is
shared amongst the restaurants. For instance, each restaurant is
supported by one support center located in Houston, Texas. This
support center carries out many administrative-like functions
including marketing, menu development, accounting, real estate and
development, human resources, and all matters regarding
information systems and technology. Again, the goal is that by only
using one support system, as oppose to three individual centers, IRG
will benefit in the form of reduced administrative expenses. This in
effect will increase its profitability.
Business Growth Strategies
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In the restaurant business, there are three primary aspects that must
be focused on in order to sustain growth and achieve success. These
aspects are: restaurant openings (focusing on new stores),
comparable restaurant sales (focusing on current stores), and
scalability (using both new and current stores as well as vital
resources as a means of growing the bottom line). IRG has been
focusing on each of these aspects carefully and diligently by creating
and executing specific plans in the hopes of growing the name and
notoriety of all of its restaurant brands. IRG also will use its recent
acquisition of Romano’s Macaroni Grill to its advantage. The
company’s specific strategy with regards to Romano’s Macaroni
Grill will be discussed shortly.
Figure 11:
Joe’s Crab Shack Openings
4
January 23rd, 2015
3
2
1
0
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
Source:
Analyst Projections
Restaurant Openings
IRG has been focused on growing the number of restaurants,
particularly its Joe’s Crab Shack and Brick House Tavern + Tap
restaurants. In all, when the company agrees to a new opening, it
believes that the new opening will achieve at least a 25% cash-oncash return. This return metric is for the company’s Joe’s Crab
Shack and Brick House Tavern + Tap restaurants.
For Joe’s Crab Shack, IRG focuses on opening restaurants in
specific geographies that are highly populated and have a high
propensity for seafood. A perfect example of such a location is the
Joe’s Crab Shack located in close proximity to the fisherman’s
wharf in San Francisco California. IRG also opens Joe’s Crab
Shacks in close proximity to regional and national tourist attractions.
Figure 12:
Openings
For Brick House Tavern + Tap, IRG did not mention any
geographical characteristics that it looks for when opening new
restaurants. However, IRG did mention that is plans to open Brick
House Tavern + Tap restaurants in the top 50 designated market
areas. It is also important to note that there is significant growth
potential for Brick House Tavern + Tap, given the few number of
restaurants currently opened for business.
7
6
5
4
Comparable Restaurant Sales Growth
In order to achieve comparable restaurant sales growth, IRG focuses
on two primary aspects: menu innovation and marketing.
3
2
1
0
2015E
2016E
2017E
2018E
2019E
2020E
2021E
Source:
Analyst Projections
2022E
2023E
Menu Innovation
Continuously improving the menus at all of IRG’s restaurants is
extremely important not only for building customer loyalty but
frequent visiting as well. Both Joe’s Crab Shack and Brick House
Tavern + Tap are known for constant menu innovations. The menus
at these restaurants changes at least twice per year and they are what
keep the customers returning, wanting to taste the new offerings.
UOIG 7
Figure 13:
Openings
0
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
-1
-2
2023E
January 23rd, 2015
For Joe’s Crab Shack, the new menu rollouts occur during the
April/May time period, as well as during the October/November
time period. These roll-outs not only include the new item launches,
but also an entirely new menu design as well as new pricing that
reflects the current economic environment. A typical menu change
includes around four to seven new items all the while maintaining
approximately 75 total items.
For Brick House Tavern + Tap, the menu is revised twice per year.
Like Joe’s Crab Shack, its new menu rollout is also associated with
an entirely new design and updated pricing. Brick House Tavern +
Tap is also known for its alcoholic beverages, as the restaurants
average about 70 varieties of beer and specialty cocktails, which are
made by in-house trained bartenders.
-3
-4
-5
-6
-7
Source:
Analyst Projections
Figure 14:
Romano’s Macaroni Grill Wine
Advertisement
Source:
macaronigrill.com
Marketing
IRG is currently focused on heavy marketing and advertising, as the
company believes such efforts will continue to drive new and repeat
business for its restaurants. The specific strategy depends on the
restaurant at hand. However all marketing efforts are aimed at
maintaining the focus on celebratory occasions as well as increasing
the frequency of customer visits though everyday enjoyable
moments. Joe’s Crab Shack is advertised primarily through a
national platform, while Brick House Tavern + Tap is advertised
locally given the relatively small number of restaurants currently
opened.
As mentioned previously, IRG purchased Romano’s Macaroni Grill
for approximately $61 million. IRG’s motive behind the acquisition
is exactly the same for its acquisition of Joe’s Crab Shack in 2006.
That is, IRG plans on completely revamping the Romano’s
Macaroni Grill brand, and in doing so, the hope is that the
restaurants begin to positively contribute to IRG’s overall
profitability. IRG’s management, whom will be discussed in greater
detail under the Management and Employee Relations section
below, will be key as they bring a great amount of experience to the
table from their turnaround of Joe’s Crab Shack.
To revamp the Romano’s Macaroni Grill brand, IRG will execute
the same strategies as it does with its other two restaurants. That is,
the company will focus on creating an innovative menu as well as
creating and executing an entirely new marketing plan. With regards
to menu innovation, IRG plans on bringing back the importance of
wine, as this element was the key focus of a Romano’s Macaroni
Grill visit. The company also created a number of new menu items,
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Figure 15:
Franchised Locations for
January 23rd, 2015
including braisers that contain slow-cooked meat as well as a unique
four-course tasting menu. With regards to marketing, IRG has
shifted the efforts from local platforms to national platforms. IRG
expects that, now, all of the Romano’s Macaroni Grill locations will
be covered by this marketing plan, as oppose to an average of only
61% prior to this newly defined strategy.
8
6
4
2
0
Source:
IRG 2013 10-K
Figure 16:
Romano’s Kitchen Counter
Advertisement
There are also two other important advantages as to why IRG
decided to acquire Romano’s Macaroni Grill. The first is franchise
opportunities and international exposure. Given that some of the
Romano’s Macaroni Grills are currently on a franchisor/franchisee
agreement, this brings an added franchise element to the structure of
IRG’s business, providing a constant and steady income stream as
well as royalties. It also allows for the opportunity for IRG to begin
franchisor/franchisee agreements with regards to its other two
restaurants, as the company will be able to utilize its current
relationships and develop new ones with candidates whom are well
capitalized and able to enter into such agreements. According to
IRG’s most recent annual filing, there were 24 franchised Romano’s
Macaroni Grills, 12 of which are located in different countries.
The second important advantage is real estate. As mentioned in the
annual and quarterly filings, IRG plans on utilizing its new acquired
real estate portfolio by converting underperforming restaurants to
another brand within the portfolio. More specifically, for the
Romano’s Macaroni Grills that are continually underperforming,
IRG can easily convert the restaurant into either a Joe’s Crab Shack
or a Brick House Tavern + Tap. In doing so could, IRG could save
an estimated $500,000 savings on investment per restaurant location
as compared to a newly constructed building. In all, the Romano’s
Macaroni Grill restaurants represent an ideal complement to IRG’s
real estate portfolio and provide the company with flexibility to
realize conversion opportunities.
Romano’s Kitchen Counter
Beginning in early November, Romano’s Kitchen Counter is aimed
to take advantage of the restaurant’s growing lunch segment. More
specifically, this new rollout is focused on a total of 12 entrees
priced at $7.00, all of which are prepared in seven minutes are less.
If the order takes longer than the guaranteed seven minutes then
order is free. The menu items range from sandwiches and pastas to
salads.
Source:
macaronigrill.com
In terms of implementation, the costs are extremely low (about
$2500 per unit), as the service model takes advantage of the counter
and display kitchen that already exists in over 75% of the locations.
In the most recent conference call (MRCC), CEO Ray Blanchette
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January 23rd, 2015
mentioned that this service may potentially expand to dinner as well,
given successful performance of Romano’s Kitchen Counter.
Figure 17:
Ray Blanchette’s 2013
Compensation
Management and Employee Relations
($ in Thousands)
Salary
Bonus Stock Awards SAR Awards O ther
$625.0
$156.3
$600.5
$1,434.8
$11.7
Total
$2,828.3
Source:
IRG Proxy Statement
Ray Blanchette
President & Chief Executive Officer
Ray has more than two decades of restaurant experience. He has
held many leadership roles prior to joining IRG, the most recent
being President and Chief Operating Officer for Pick Up Stix, which
is a fast casual restaurant chain that serves Asian cuisine through
corporate-owned restaurants and franchises in Southern California.
Ray has also served 18 years with Carlson Restaurants Worldwide,
which was the owner of the well-known brand T.G.I. Fridays. At
Carlson Restaurants Ray was infamous for his financial and
operations accomplishments, as well as his success in developing
high-performing teams.
Figure 18:
Jim Mazany’s 2013
Compensation
Ray joined IRG in 2007 and is primarily accredited for the Joe’s
Crab Shack turn around with the other executives discussed below.
($ in Thousands)
Salary
$355.8
$30.2
$480.4
$358.7
$74.3
Total
$1,299.4
Source:
IRG Proxy Statement
Jim Mazany
President of Joe’s Crab Shack
Jim joined IRG in 2007 and became President of Joe’s Crab Shack
in 2013. Joe’s Crab Shack has performed extremely well under his
leadership, including margin growth of 450 basis points (bps) and
18 consecutive quarters of comparable sales growth.
Prior to joining IRG, Jim served as Vice President of Operations at
Apple Gold, which is the second largest Applebee’s franchise group.
More specifically he supervised 68 restaurants, which entailed
recruiting various directors and developing a team which was
responsible for executing a wide scale turnaround plan that
improved both sales and operating margins.
Figure 19:
David Catalano’s 2013
Compensation
Lastly, Jim has also served as the Director of Operations for T.G.I
Fridays.
($ in Thousands)
Salary
Total
$219.2
$30.0
$830.9
-
$569.7
Source:
IRG Proxy Statement
$12.0
David Catalano
President of Brick House Tavern + Tap
David’s career spans 20 years and includes executive positions in
both the hospitality and entertainment industries. More specifically,
David has held executive positions at T.G.I Fridays, Hard Rock
UOIG 10
January 23rd, 2015
Café, Apple Gold, and Rave Motion Pictures. David is well known
for building both high performing work teams and brand names, and
developing domestic and international operations.
John Gilbert
President of Romano’s Macaroni Grill
Figure 20:
IRG’s Geographic Region
Breakdown
John has 20 years of experience in the restaurant business and has
held executive positions at well-known brands including Dunkin
Donuts, Kentucky Fried Chicken, T.G.I Fridays.
(Total Restaurants)
56
John has served on IRG’s Board of Directors and recently became
President of Romano’s Macaroni Grill in March 14’.
150
39
Management Guidance
42
11 15
11
11
Texas
Florida
California
New York
New Jersey
Virgina
Colorado
Romano’s Macaroni Grill also struggled with soft top-line results,
however year-over-year, net loss from operations improved
approximately 23.3%. This was the result of the slowing of
discounting programs from the previous year as well as the closing
of 19 restaurants.
Figure 21:
Svigals’ Portfolio Market Cap
Allocation
60.0%
53%
50.0%
45%
44%
40.0%
30.0%
27%
19%
20.0%
11%
10.0%
0.0%
Small Cap
Mid Cap
Benchmark
Q3 2014 Results
Joe’s Crab Shack struggled with soft top-line results, primarily as a
Other
result of operations in the northeast. Year-over-year, revenue
declined approximately 4.8%. Joe’s Crab Shack is facing
cannibalization of sales as IRG continues to grow within the region.
At the beginning of 2012, there were three restaurants in the
northeast region. Now, there are a total of 21 restaurants with one
more opening sometime next year.
Large Cap
Brick House Tavern + Tap had strong results year-over-year. Topline and bottom-line improved 40.3% and 76.9%, respectively. This
was the result of an improved menu as well as the proper execution
of expanding margins.
2014 Expectations
Revenues for the year are expected to be in the $830 million to $845
million range. Q4 2014 revenues are expected to be in the $170
million to $180 million range.
Svigals
Source:
University of Oregon Investment
Group
Management has implemented a G&A austerity initiative during the
quarter, in which it plans to improve margins even further as a way
to increase profitability in the short-term. Year-to-date, management
has reduced corporate headcount by approximately 20%. In sum,
management has suggested seeing about a $6 million reduction of
UOIG 11
January 23rd, 2015
this-line item going forward. For the year, G&A expenses are
expected to be between $44 million and $46 million.
Pre-opening expense for the year is projected to be in the $2.6
million to $2.9 million range.
Figure 22:
Svigals’ Portfolio Sector
Allocation
35.0%
Portfolio Strategy
IRG is being pitched to the Svigals portfolio. As of January 14,
2015, the portfolio is underweight small capitalization companies,
and is slightly overweight consumer goods.
30%
30.0%
28%
25.0%
20% 20%
20.0%
19% 20%
17% 17%
15%
15.0%
13%
10.0%
5.0%
As of January 14, 2015, the Svigals portfolio has about $511.00 in
cash and about 12.3% of the portfolio is currently held in index
funds, all of which will provide money to purchase IRG stock.
Recent News
0.0%
Healthcare
Technology
Financials
Benchmark
IME
Svigals
Source:
University of Oregon Investment
Group
Con. Goods
New Joe’s Crab Shack Offers Free Crab for a Year to Queens
Quests – PR Newswire
As mentioned above, IRG is currently expanding its Joe’s Crab
Shack brand in the northeast. This article discusses a specific Joe’s
Crab Shack that opened early December 14’ in New York. As a way
of promoting the new restaurant, the first 100 quests who dine at this
new location will receive free crab for one year.
Romano’s Kitchen Counter Guarantees Scratch-Made Lunch in
Seven Minutes – PR Newswire
Figure 23:
PR Newswire Logo
As mentioned above in the Growth Strategies section, this article
discusses Romano’s Macaroni Grill’s new Kitchen Counter service,
as a way to tap into the restaurant’s growing lunch segment. This
new rollout is also perfect for those who face time pressures, where
the typical lunch break is only 30 minutes.
Catalysts
Upside
Source:
Prnewswire.com


Continual revamping of Romano’s Macaroni Grill
restaurants will positively affect IRG’s bottom line going
forward, increasing IRG’s stock price as positive
performance will result.
The inclusion of Romano’s Macaroni Grill operations
provide IRG with the opportunity to explore
UOIG 12
January 23rd, 2015

Figure 24:
Final Comparable Analysis
Valuation
Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Price Target
Current Price
Undervalued
Implied Price
$56.34
$69.14
($1.72)
$10.11
($85.51)
$2.72
$10.11
7.17
40.97%
Source:
UOIG Spreads
franchisor/franchisee relationships, further diversifying the
company’s revenue stream, driving performance going
forward.
Further expansion of IRG’s Brick House Tavern + Tap will
drive revenue going forward as both the number of these
restaurants and revenue per restaurant increases.
Downside
Weight
0.00%
0.00%
0.00%
100.00%
0.00%
0.00%



The process of closing Romano’s Macaroni Grill
restaurants, which is currently dragging the bottom line
could continue, causing further non-recurring items such as
asset impairment.
Joe’s Crab Shack’s trouble in the northeast could continue,
further effecting the bottom line going forward.
IRG’s microcap size could negatively affect the stock price,
as liquidity issues may arise.
Comparable Analysis
Each of IRG’s individual restaurants compete primarily based on the
food served.
Joe’s Crab Shack
Red Lobster is the only nationally branded seafood competitor for
Joe’s Crab Shack. However, the company was sold by Darden
Restaurants to Gold Gate Capital in early 2014.
Figure 25:
Buffalo Wild Wings Logo
Brick House Tavern + Tap primarily competes in the bar and grill
segment. More specifically, Brick House Tavern + Tap competes
with BJ’s Restaurants, Buffalo Wild Wings and Yard House. Yard
House is owned by Darden Restaurants.
Romano’s Macaroni Grill primarily competes with Olive Garden
and other local restaurants located near specific Romano’s locations.
All three IRG brands also compete with a broader range of casual
dining brands such as The Cheesecake Factory, Applebee’s, Chili’s,
T.G.I Friday’s, Texas Roadhouse, and Outback Steakhouse.
Source:
Buffalowilwings.com
Buffalo Wild Wings, Inc. ($BWLD) – 50%
UOIG 13
Figure 26:
BJs Logo
January 23rd, 2015
Buffalo Wild Wings, Inc. owns restaurant chains in the United
States, Canada, and Mexico. Its primary food is chicken wings and
various caffeinated beverages, but it also serves beer, wine, and
liquor. As of mid-2014, Buffalo Wild Wings owned approximately
1,000 restaurants. Buffalo Wild Wings was founded in 1982 and is
headquartered in Minnesota.
Buffalo Wild Wings was given a weighting of 50% given the
relatively similar EBITDA growth for 2015E and 2016E. Buffalo
Wild Wings and IRG also share relatively similar gross margins.
Source:
Bjsrestaurants.com
BJs Restaurants, Inc. ($BJRI) – 30%
BJs Restaurants Inc. owns casual dining restaurants throughout the
United States. Like the Cheesecake Factory mentioned above, its
menu offers a vast range of foods including pizza, pasta,
sandwiches, and salads. As of early 2015, it owned 156 restaurants.
BJ’s restaurants was founded in 1978 and is headquartered in
California.
BJs Restaurants was given a weighting of 30% given its relatively
similar EBITDA growth for 2015E and 2016, particularly 2016E.
BJs Restaurants also is similar in size relative to IRG and both
companies have relatively similar capital structures.
Figure 27:
Darden Restaurants Logo
Source:
Darden.com
Figure 28:
DineEquity Logo
Source:
Dineequity.com
Darden Restaurants, Inc. ($DRI) – 5%
Darden Restaurants owns chain restaurants both in the United States
and in Canada. Its portfolio of restaurants includes Olive Garden,
LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital
Grille, Eddie V's, and Yard House. As of mid-2014, the company
owned approximately 1,500 restaurants. Darden was founded in
1968 and is headquartered in Florida.
Darden was given a weighting of 5% given the relatively similar
revenue growth for 2015E and 2016E. Darden and IRG also share
relatively similar gross margins.
DineEquity, Inc. ($DIN) – 5%
DineEquity owns restaurant chains both in the United States and
internationally. Its portfolio of restaurants includes Applebee’s
Neighborhood Grill and Bar and International House of Pancakes
(IHOP). As of early 2014, DineEquity owned approximately 3,600
UOIG 14
Figure 29:
The Cheesecake Factory Logo
January 23rd, 2015
restaurants across 19 countries. DineEquity was founded in 1858
and is headquartered in California.
DineEquity was given a weighting of 5% given the relatively similar
revenue growth for 2015E and 2016E. As far as from a qualitative
perspective, IRG’s directly competes with both Applebee’s
Neighborhood Grill and Bar as well as IHOP.
Source:
Thecheesecakefactory.com
Figure 30:
Texas Roadhouse Logo
Source:
Texasroadhouse.com
Figure 31:
Chipotle Mexican Grill Logo
The Cheesecake Factory ($CAKE) – 5%
The Cheesecake Factory owns both casual dining and full-service
restaurants. Its menu is vast including pastas and pizzas, as well as
Asian cuisine consisting of different flavored chicken. As of yearend 2014, The Cheesecake Factory owned 189 restaurants. The
Cheesecake Factory was founded in 1972 and is headquartered in
California.
The Cheesecake Factory was given a weighting of 5% given the
relatively similar revenue growth for 2015E and 2016E as well as
its relatively similar capital structure to that of IRG.
Texas Roadhouse, Inc. ($TXRH) – 5%
Texas Roadhouse owns casual dining restaurants in the United
States. Its menu is primarily barbeque themed, serving a wide range
of steaks, hamburgers, sandwiches, and salads. As of May 2014, it
owned 425 restaurants. Texas Roadhouse was founded in 1993 and
is headquartered in Kentucky.
Texas Roadhouse was given a 5% weighting for more so qualitative
factors rather than revenue or EBITDA growth rates. Both Texas
Roadhouse and IRG serve similar customer segments and their
menu items are priced within a similar range. However, it should be
mentioned that Texas Roadhouse and IRG share relatively similar
gross margins and capital structures.
Chipotle Mexican Grill, Inc. ($CMG) – 0%
Chipotle Mexican Grill, Inc. owns fast casual dining restaurants. Its
menu items are Mexican themed and include burritos, burrito salads,
quesadillas, and tacos. As of mid-2014, it owned approximately
1,600 restaurants. Chipotle Mexican Grill was founded in 1993 and
is headquartered in Colorado.
Source:
Chipotle.com
UOIG 15
January 23rd, 2015
Chipotle Mexican Grill was given a 0% weighting primarily given
the fact that this company is relatively large to IRG.
Discounted Cash Flow Analysis
Revenue Model
In essence, the revenue model considers two inputs to derive total
revenue for each of IRG’s three restaurant brands: Joe’s Crab Shack,
Brick House Tavern + Tap, and Romano’s Macaroni Grill. The first
input is the total number of restaurants for each restaurant brand,
and the second input is average unit volume, or the average revenue
per restaurant.
Figure 32:
Total Restaurant Growth
10
8
6
4
2
0
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
Source:
Analyst Projections
Figure 33:
Average Unit Volume Growth
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
Total Number of Restaurants
Projections for each restaurant brand were based on a combination
of past trends and management guidance. The growth in the number
of Joe’s Crab Shack restaurants is relatively in line with past trends,
as management has not suggested otherwise. For Brick House
Tavern + Tap, the fast growth in the number of restaurants is
assumed to continue. This was under the assumption that IRG will
continue to nurture and grow Brick House Tavern + Tap into a
nationally recognized brand. As of IRG’s last annual report, the
majority of these restaurants were located in Texas and Florida,
leaving substantial room for growth in other markets going forward.
The approach taken to derive Romano’s Macaroni Grill was
different compared to that of Joe’s Crab Shack and Brick House
Tavern + Tap. As management has stated, they will continue to
explore the possibilities/opportunities to convert Romano’s
Macaroni Grill restaurants into either Joe’s Crab Shack and/or Brick
House Tavern + Tap. This is because, in terms of the costs, IRG
saves approximately $500,000 if it were to convert a restaurant
rather than construct an entirely new building. The assumption used,
however, is that all of these conversions will be from Romano’s
Macaroni Grill to Brick House Tavern + Tap, as oppose to
Romano’s Macaroni Grill to Joe’s Crab Shack. This is because the
majority of the Romano’s Macaroni Grill restaurants are in locations
that are better suited for Brick House Tavern + Tap restaurants.
0.0%
2015E
2016E
2017E
Joe's Crab Shack
2018E
2019E
2020E
2021E
2022E
Romano's Macaroni Grill
Source:
Analyst Projections
2023E
Average Unit Volume
Projections for each restaurant brand were based on management
guidance and strategy. For Joe’s Crab Shack, modest growth is
assumed, which is based on past trends. For Brick House Tavern +
Tap, higher growth is assumed for the next several years and then is
projected to decline to modest levels going into the terminal year.
This is based on a combination of management guidance and overall
strategy. For Romano’s Macaroni Grill, relatively higher growth is
assumed and then is projected to decline to modest levels going into
UOIG 16
January 23rd, 2015
the terminal year, which is based on a combination of management
guidance and overall strategy.
Figure 34:
Cost of Sales
Three Statement Model
Income Statement
(As a % of Total Revenue)
30.0%
29.0%
28.0%
27.0%
26.0%
25.0%
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
Source:
Analyst Projections
Cost of Sales
Cost of sales is projected to decrease slightly less than 300 bps going
into the terminal year, which is based on the historical trend
beginning in 2011. Cost of sales have been decreasing, as a percent
of revenue, due to the inclusion of Romano’s Macaroni Grill, which
tends to have lower food costs relative to Joe’s Crab Shack. The
same is true for Brick House Tavern + Tap. As both of these
restaurants, combined, represent a larger portion of IRG’s total
revenue going into the terminal year, the cost associated with
producing that revenue is expected to decline. IRG has also
experienced a continued move to items with better margins. This
trend is assumed going forward as IRG will continue its strong
marketing initiatives that promote its core profitable menu items.
General & Administrative (G&A)
Given managements G&A strategy mentioned above in the
Management Guidance section on page 11, this line item is
projected to decrease slightly going into the terminal year.
Figure 35:
Capital Expenditures
Tax Rate
A tax rate of 35% is assumed in the terminal year.
(As a % of Total Revenue)
6.0%
Balance Sheet
The balance sheet is projected using both day’s outstanding methods
and percentage of revenue methods where appropriate. Specific line
items that were projected using the day’s outstanding method
include accounts, receivable, inventories, and accounts payable. All
other line items were based off a percentage of revenue.
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
2015E
2016E
2017E
2018E
2019E
Intangible Assets
2020E
2021E
PP&E
Source:
Analyst Projections
2022E
2023E
Statement of Cash Flows
All items on the statement of cash flows flowed through the income
statement or balance sheet.
As per the restrictions in IRG’s $165 million term loan, capital
expenditures are limited to a specific amount each year until
maturity (February 2019). The DCF reflects these yearly amounts,
in which no single year is greater than the amount stated in the term
loan agreement. Once the term loan matures, another term loan is
assumed with exactly the same characteristics and restrictions, and
UOIG 17
January 23rd, 2015
capital expenditures are projected as 5% of revenue going into the
terminal year.
Figure 36:
IRG’s Beta
Beta
Standard Error Weighting
1 Year Daily
0.90
0.26
0%
Since Public
0.77
0.15
67%
Hamada
0.55
Beta
33%
0.70
Source:
Analyst Projections
Figure 37:
Intermediate Growth Rate
Beta
IRG’s stock returns were regressed against the returns of the S&P
500. Given that IRG has only been trading since May 2012, the
standard 3-year daily regression could not be calculated. Instead, a
1-year daily regression was calculated. Along with the 1-year daily,
a regression was calculated since IRG’s initial public offering.
Lastly, a Hamada beta was calculated based on the comparable
companies mentioned above. A final beta of .70 was derived.
Given the approximate 7% growth of free cash flows in the terminal
year, an intermediate growth rate was used.
Cost of Equity
The Capital Asset Pricing Model (CAPM) was used to calculate
IRG’s cost of equity. The yield on the current 10-year Treasury Bill
was use for the risk free rate and 5.75% was used as the market risk
premium.
2024
2025
5.00%
3.00%
$17,193
$17,709
$9,930
$9,681
Source:
Analyst Projections
Cost of Debt
IRG currently has an outstanding term loan of 8%. However, using
this 8% figure would cause IRG’s cost of debt to be above its cost
of equity. To resolve this issue, the average cost of debt for the
restaurant/dining industry was looked at, which is 3.17%. Also, an
average cost of debt was calculated based on the comparable
companies. Assigning a weighting of 33.33% to each, implies a cost
of debt of 5.52%.
Terminal WACC
A terminal WACC was calculated in order to calculate an
appropriate discount rate reflective of IRG’s terminal year’s capital
as well as market borrowing conditions. The terminal risk free rate
is the current yield on the 30-year U.S. Treasury Bill.
Recommendation
Though Romano’s Macaroni Grill is not yet accretive to IRG’s
bottom line, management is expected to continue revamping the
restaurant brand as they did with Joe’s Crab Shack, proving
beneficial to the company’s bottom line going forward. For the
Romano’s Macaroni Grills that continue to underperform
expectations, IRG can easily convert the real estate into one of its
other two restaurant brands, an ability that will prove beneficial as
UOIG 18
January 23rd, 2015
certain dynamics may change going forward. Lastly, there is still a
great amount of room for growth for IRG’s smallest restaurant
brand, Brick House Tavern + Tap. Management is expected to
increase its national presence going forward, growing both the
company’s top line and bottom line. With that being said, I
recommend an outperform (buy) for the Svigals Portfolio.
UOIG 19
January 23rd, 2015
Appendix 1 – Relative Valuation
Comparables Analysis
IRG
Ignite Restaurant
Group, Inc.
($ in Millions)
Stock Characteristics
Current Price
Beta
Max
$713.44
$1.09
Min
$7.17
$0.70
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Non-Controlling Interest
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
222.60
2,533.40
578.17
6.20
0.00
133.20
22,317.12
21,738.94
0.00
0.00
30.98
0.00
0.00
18.87
187.85
318.03
0.00
50.99
98.30
0.00
0.00
31.28
2,941.80
3,292.00
Growth Expectations
% Revenue Growth 2015E
% Revenue Growth 2016E
% EBITDA Growth 2015E
% EBITDA Growth 2016E
% EPS Growth 2015E
% EPS Growth 2016E
19.41%
14.85%
23.32%
22.35%
162.05%
63.77%
2.78%
1.77%
3.25%
4.86%
13.11%
6.66%
55.80%
33.39%
38.91%
11.06%
$127.50
$0.51
$5.01
$70.00
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
Credit Metrics
Interest Expense
Debt/EV
Leverage Ratio
Interest Coverage Ratio
Operating Results
Revenue
Gross Profit
EBIT
EBITDA
Net Income
Multiples
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Median
Weight Avg.
$60.94
$117.64
$0.94
$1.00
BWLD
Buffalo Wild
Wings, Inc.
BJRI
DRI
DIN
TXRH
BJ's Restaurants,
Darden
DineEquity, Inc.
Texas
Inc.
Restaurants, Inc.
Roadhouse, Inc.
CAKE
Cheesecake
Factory
Incorporated
CMG
Chipotle
Mexican Grill,
Inc.
$7.17
0.70
50.00%
$181.50
1.09
30.00%
$46.55
0.91
5.00%
$60.94
0.94
5.00%
$109.09
0.94
5.00%
$34.34
0.92
5.00%
$54.10
0.89
0.00%
$713.44
1.09
11.99
200.73
93.64
0.31
0.00
32.01
2,896.05
3,015.45
1.65
161.35
36.30
0.00
0.00
26.20
187.85
318.03
0.00
0.00
133.29
0.00
0.00
18.87
3,425.30
3,292.00
0.00
0.00
30.98
0.00
0.00
28.90
1,345.06
1,314.08
222.60
2,533.40
98.30
0.00
0.00
133.20
8,117.21
10,774.91
16.97
1,364.07
106.71
0.00
0.00
19.14
2,088.09
3,362.41
0.24
50.99
87.17
6.20
0.00
71.36
2,450.57
2,420.83
0.00
66.20
61.75
0.00
0.00
54.38
2,941.80
2,946.24
0.00
0.00
578.17
0.00
0.00
31.28
22,317.12
21,738.94
10.34%
10.84%
13.37%
14.56%
19.83%
18.60%
14.04%
12.00%
16.27%
19.32%
21.66%
21.95%
5.75%
6.08%
20.80%
19.29%
162.05%
63.77%
19.41%
14.76%
18.81%
22.35%
19.83%
21.41%
10.34%
10.87%
17.07%
19.90%
27.94%
27.44%
2.78%
5.79%
8.05%
11.10%
13.11%
17.60%
3.07%
1.77%
3.25%
4.86%
23.19%
6.66%
11.20%
10.84%
13.37%
14.56%
15.15%
18.60%
7.54%
8.81%
10.30%
12.94%
15.86%
17.37%
17.58%
14.85%
23.32%
18.88%
24.20%
19.64%
11.29%
.41%
3.65%
.25%
16.97%
8.32%
12.72%
5.65%
23.67%
7.99%
14.15%
4.92%
11.29%
0.41%
3.65%
0.25%
16.97%
8.22%
14.93%
5.65%
33.64%
3.68%
10.01%
2.71%
15.76%
5.27%
10.14%
2.91%
55.80%
33.39%
38.91%
11.06%
15.01%
8.32%
11.94%
5.65%
15.34%
8.54%
12.72%
6.09%
23.60%
16.76%
19.75%
10.19%
$0.00
$0.00
$0.00
$0.00
$2.10
$0.02
$0.24
$2.32
$11.72
$0.04
$0.44
$5.71
$0.00
0.51
5.01
0.00
$0.00
0.00
0.00
0.00
$0.00
0.00
0.00
0.00
$127.50
0.26
3.33
3.81
$100.26
0.41
4.98
2.32
$2.10
0.02
0.24
70.00
$4.50
0.02
0.25
38.14
$0.00
0.00
0.00
0.00
$6,909
$1,612
$897
$1,022
$549
$351
$670
$385
$4
$33
$2
$10
$1,809
$1,128
$172
$278
$114
$127
$1,758
$918
$150
$250
$99
$139
$891
$590
$4
$33
$2
$46
$1,809
$965
$169
$279
$114
$157
$933
$692
$45
$105
$33
$103
$6,909
$1,436
$486
$829
$318
$351
$670
$385
$233
$278
$100
$10
$1,752
$1,128
$147
$216
$99
$115
$2,138
$1,612
$172
$261
$120
$127
$4,836
$1,357
$897
$1,022
$549
$241
5.02x
16.02x
86.07x
21.28x
485.87x
84.53x
0.36x
0.54x
14.46x
9.77x
(24.57x)
20.86x
1.56x
3.41x
19.45x
12.11x
23.89x
25.55x
1.80x
3.29x
22.09x
12.03x
163.28x
32.06x
0.36x
0.54x
86.07x
9.77x
(24.57x)
84.53x
0
1.82x
3.41x
19.45x
11.80x
26.94x
29.93x
1.41x
1.90x
29.52x
12.49x
485.87x
41.01x
1.56x
7.50x
22.17x
13.00x
22.56x
25.55x
5.02x
8.73x
14.46x
12.11x
12.57x
20.86x
1.38x
2.15x
16.45x
11.18x
23.89x
24.81x
1.38x
1.83x
17.15x
11.28x
21.94x
24.54x
4.50x
16.02x
24.22x
21.28x
27.86x
40.67x
UOIG 20
January 23rd, 2015
Appendix 2 – Discounted Cash Flows Valuation
Discounted Cash Flow Analysis
($ in Thousands)
Total Revenue
% YoY Growth
Cost of sales
% Revenue
Gross Profit
Gross Margin
Labor and benefits
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
2011A
2012A
2013A
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
Year 10
2023E
$405,243.0
$465,056.0
$760,848.0
$842,473.7
$890,911.8
$945,053.2
$1,003,978.6
$1,066,229.3
$1,134,557.5
$1,214,939.3
$1,297,169.2
$1,384,754.4
$1,463,455.0
15.3%
14.8%
63.6%
10.7%
5.7%
6.1%
6.2%
6.2%
6.4%
7.1%
6.8%
6.8%
5.7%
127,607.0
145,451.0
227,571.0
252,742.1
264,155.4
276,900.6
290,651.8
305,474.7
321,647.0
341,398.0
361,261.6
382,192.2
403,913.6
27.6%
27.6%
31.5%
31.3%
29.9%
30.0%
29.7%
29.3%
29.0%
28.7%
28.4%
28.1%
27.9%
$277,636.0
$319,605.0
$533,277.0
$589,731.6
$626,756.5
$668,152.6
$713,326.8
$760,754.6
$812,910.4
$873,541.4
$935,907.6
$1,002,562.2 $1,059,541.5
68.5%
68.7%
70.1%
70.0%
70.4%
70.7%
71.1%
71.4%
71.7%
71.9%
72.2%
72.4%
72.4%
111,721.0
127,331.0
233,321.0
253,218.9
267,777.8
284,050.8
301,761.8
320,472.2
341,009.4
365,169.4
389,884.9
416,210.0
439,864.8
% Revenue
27.6%
27.4%
30.7%
30.1%
30.1%
30.1%
30.1%
30.1%
30.1%
30.1%
30.1%
30.1%
30.1%
Occupancy expenses
30,667.0
33,865.0
66,737.0
75,047.3
79,362.2
84,185.1
89,434.1
94,979.4
101,066.0
108,226.4
115,551.4
123,353.5
130,364.1
% Revenue
Other
7.6%
7.3%
8.8%
8.9%
8.9%
8.9%
8.9%
8.9%
8.9%
8.9%
8.9%
8.9%
8.9%
72,337.0
81,200.0
159,344.0
169,260.3
178,992.0
189,869.5
201,708.1
214,214.8
227,942.5
244,091.9
260,612.6
278,209.3
294,020.9
% Revenue
17.9%
17.5%
20.9%
20.1%
20.1%
20.1%
20.1%
20.1%
20.1%
20.1%
20.1%
20.1%
20.1%
General and administrative
23,556.0
31,725.0
52,465.0
54,365.3
55,709.2
57,204.6
58,763.4
60,274.5
61,868.0
63,821.4
68,141.0
72,741.9
76,876.1
% Revenue
5.8%
6.8%
6.9%
6.5%
6.3%
6.1%
5.9%
5.7%
5.5%
5.3%
5.3%
5.3%
5.3%
Pre-opening costs
4,855.0
3,871.0
4,824.0
5,284.3
5,588.1
5,927.7
6,297.3
6,687.8
7,116.4
7,620.5
8,136.3
8,685.7
9,179.3
% Revenue
1.2%
.8%
.6%
.6%
.6%
.6%
.6%
.6%
.6%
.6%
.6%
.6%
.6%
Asset impairments and closures
333.0
115.0
1,371.0
–
–
–
–
–
–
–
–
–
–
% Revenue
.1%
.0%
.2%
-
-
-
-
-
-
-
-
-
-
1,295.0
2,296.0
2,601.0
–
–
–
–
–
–
–
–
–
–
.3%
.5%
.3%
-
-
-
-
-
-
-
-
-
-
16,011.0
18,572.0
27,507.0
28,860.6
29,724.5
31,317.1
33,100.4
35,100.3
37,205.3
39,552.4
42,084.7
44,802.3
12.8%
16.4%
10.4%
10.7%
10.6%
10.7%
10.7%
10.7%
10.7%
10.7%
10.7%
10.8%
$20,630.0
($14,893.0)
$3,694.9
$9,602.7
$15,597.9
$22,261.7
$29,025.6
$36,702.8
$45,059.3
$51,496.6
$58,559.5
$61,558.7
1.1%
1.7%
2.2%
2.7%
3.2%
3.7%
4.0%
4.2%
4.2%
Loss on disposal of property and equip.
% Revenue
Depreciation and amortization
% PP&E
Earnings Before Interest & Taxes
$16,861.0
47,677.6
% Revenue
4.2%
4.4%
(2.0%)
.4%
Interest Expense
9,215.0
9,366.0
5,246.0
–
–
–
–
–
–
–
–
–
–
% Revenue
2.3%
2.0%
.7%
-
-
-
-
-
-
-
-
-
-
1,126.0
(799.0)
1,161.0
–
–
–
–
–
–
–
–
–
–
.3%
(.2%)
.2%
-
-
-
-
-
-
-
-
-
-
Earnings Before Taxes
8,772.0
10,465.0
(18,978.0)
3,694.9
9,602.7
15,597.9
22,261.7
29,025.6
36,702.8
45,059.3
51,496.6
58,559.5
% Revenue
2.2%
2.3%
(2.5%)
.4%
1.1%
1.7%
2.2%
2.7%
3.2%
3.7%
4.0%
4.2%
4.2%
3,291.0
(1,751.0)
12,393.0
(1,472.4)
(3,778.7)
(6,059.8)
(8,537.4)
(10,986.3)
(13,708.6)
(16,604.5)
(18,719.2)
(20,993.8)
(21,545.5)
Gain (loss) on insurance settlements
% Revenue
Less Tax (Expense) Benefits
Tax Rate
Net Income
Net Margin
61,558.7
37.5%
(16.7%)
(65.3%)
39.9%
39.4%
38.9%
38.4%
37.9%
37.4%
36.9%
36.4%
35.9%
35.0%
$12,063.0
$8,714.0
($6,585.0)
$2,222.45
$5,824.0
$9,538.1
$13,724.3
$18,039.3
$22,994.2
$28,454.8
$32,777.4
$37,565.8
$40,013.1
3.0%
1.9%
(.9%)
.3%
.7%
1.0%
1.4%
1.7%
2.0%
2.3%
2.5%
2.7%
2.7%
Add Back: Depreciation and Amortization
16,011.0
18,572.0
27,507.0
28,860.6
29,724.5
31,317.1
33,100.4
35,100.3
37,205.3
39,552.4
42,084.7
44,802.3
47,677.6
Add Back: Interest Expense*(1-Tax Rate)
5,757.8
10,933.1
8,671.7
–
–
–
–
–
–
–
–
–
–
333.0
115.0
1,371.0
–
–
–
–
–
–
–
–
–
–
1,295.0
2,296.0
2,601.0
–
–
–
–
–
–
–
–
–
$35,459.8
$40,630.1
$33,565.7
Add Back: Asset impairments and closures
Add Back: Loss on disposal of property and equip.
Operating Cash Flow
% Revenue
Current Assets
% Revenue
Current Liabilities
% Revenue
$31,083.0
$35,548.6
$40,855.2
$46,824.7
$53,139.6
$60,199.5
$68,007.2
$74,862.1
$82,368.0
–
$87,690.7
8.8%
8.7%
4.4%
3.7%
4.0%
4.3%
4.7%
5.0%
5.3%
5.6%
5.8%
5.9%
6.0%
18,122.0
17,366.0
40,738.0
45,141.2
47,601.8
50,351.6
53,339.3
56,508.3
59,982.4
64,100.8
68,299.1
72,761.1
76,948.8
4.5%
3.7%
5.4%
5.4%
5.3%
5.3%
5.3%
5.3%
5.3%
5.3%
5.3%
5.3%
5.3%
37,554.0
37,151.0
87,495.0
87,025.8
89,281.0
91,845.5
94,594.1
250,528.3
100,508.9
104,361.5
108,991.5
113,798.6
117,959.2
9.3%
8.0%
11.5%
10.3%
10.0%
9.7%
9.4%
23.5%
8.9%
8.6%
8.4%
8.2%
8.1%
Net Working Capital
($19,432)
($19,785)
($46,757)
($41,885)
($41,679)
($41,494)
($41,255)
($194,020)
($40,527)
($40,261)
($40,692)
($41,038)
($41,010)
% Revenue
(4.8%)
(4.3%)
(6.1%)
(5.0%)
(4.7%)
(4.4%)
(4.1%)
(18.2%)
(3.6%)
(3.3%)
(3.1%)
(3.0%)
(2.8%)
(353.0)
(26,972.0)
4,872.4
205.4
185.3
239.1
(152,765.2)
153,493.5
265.9
(431.7)
(345.2)
27.2
1,155.0
1,222.0
1,353.1
1,430.9
1,517.9
1,612.5
1,712.5
1,822.2
1,951.3
2,083.4
2,224.1
2,350.5
Change in Working Capital
Capital Expenditures - Intangible
% Revenue
Capital Expenditures - PP&E
% Revenue
Acquisitions
% Revenue
Unlevered Free Cash Flow
Discounted Free Cash Flow
222.0
.1%
.2%
.2%
.2%
.2%
.2%
.2%
.2%
.2%
.2%
.2%
.2%
.2%
39,442.0
44,226.0
51,364.0
28,146.9
44,069.1
44,282.1
50,887.5
51,987.5
56,777.8
60,800.4
64,915.5
69,298.6
73,237.1
9.7%
9.5%
6.8%
3.3%
4.9%
4.7%
5.1%
4.9%
5.0%
5.0%
5.0%
5.0%
5.0%
0.0
0.0
55,288.0
–
–
–
–
–
–
–
–
–
–
0.0%
0.0%
7.3%
–
–
–
–
–
–
–
–
–
–
($4,204.2)
($4,397.9)
($47,336.3)
($3,289.4)
($10,156.8)
($5,130.2)
($5,914.4)
$152,204.9
($151,894.0)
$4,989.6
$8,294.9
$11,190.5
$12,075.9
($3,289.4)
($9,687.7)
($4,667.2)
($5,132.2)
$125,974.7
($119,911.1)
$3,757.0
$5,957.4
$7,665.9
$7,890.3
UOIG 21
January 23rd, 2015
Appendix 3 – Revenue Model
Revenue Model
($ in T housands)
Joe's Crab Shack
% Growth
Q1-Q3
Q4
FY
Q1-Q3
Q4
FY
2011
2012
2013
2013
2013
2014
2014E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
358,542
418,904
364,195
83,576
447,771
352,971
85,420
438,391
463,527
489,886
517,522
546,493
576,858
608,679
642,020
676,950
710,092
-
16.8%
13.6%
(15.1%)
6.9%
(3.1%)
2.2%
(2.1%)
5.7%
5.7%
5.6%
5.6%
5.6%
5.5%
5.5%
5.4%
4.9%
% of Total Revenue
88.5%
90.1%
63.4%
44.7%
58.9%
53.5%
46.8%
52.0%
52.0%
51.8%
51.5%
51.3%
50.8%
50.1%
49.5%
48.9%
48.5%
46,701
46,152
36,378
15,002
51,380
52,679
15,752
68,431
85,132
110,841
138,909
169,507
202,817
239,034
277,040
316,462
350,281
-
(1.2%)
13.9%
5.6%
11.3%
44.8%
5.0%
33.2%
24.4%
30.2%
25.3%
22.0%
19.7%
17.9%
15.9%
14.2%
10.7%
11.5%
9.9%
6.3%
8.0%
6.8%
8.0%
8.6%
8.1%
9.6%
11.7%
13.8%
15.9%
17.9%
19.7%
21.4%
22.9%
23.9%
0
0
173,425
88,272
261,697
254,284
81,368
335,652
342,253
344,326
347,547
350,229
354,883
367,227
378,108
391,342
403,082
% Growth
% of Total Revenue
Romano's Macaroni Grill
% Growth
% of Total Revenue
Total Revenue
% Growth
-
-
-
-
-
46.6%
(7.8%)
28.3%
2.0%
.6%
.9%
.8%
1.3%
3.5%
3.0%
3.5%
3.0%
0.0%
0.0%
30.2%
47.2%
34.4%
38.5%
44.6%
39.8%
38.4%
36.4%
34.6%
32.8%
31.3%
30.2%
29.1%
28.3%
27.5%
$405,243
$465,056
$573,998
$186,850
$760,848 $659,934
$182,540
$842,474
$890,912
$945,053 $1,003,979 $1,066,229 $1,134,557 $1,214,939 $1,297,169 $1,384,754 $1,463,455
14.8%
62.9%
65.9%
63.6%
(2.3% )
10.7%
5.7%
6.1%
15.3%
15.0%
6.2%
6.2%
6.4%
7.1%
6.8%
6.8%
UOIG 22
5.7%
January 23rd, 2015
Appendix 4 – Income Statement
Income Statement
($ in T housands, except per share data)
Historical
Year 2011
Revenue
Cost of sales
Gross profit
Labor and benefits
Year 2012
Projection Period
Year 2013
Year 2014
Year 2015
Year 2016
Year 2017
Year 2018
Year 2019
Year 2020
Year 2021
Year 2022
Year 2023
$1,463,455.0
$405,243.0
$465,056.0
$760,848.0
$842,473.7
$890,911.8
$945,053.2
$1,003,978.6
$1,066,229.3
$1,134,557.5
$1,214,939.3
$1,297,169.2
$1,384,754.4
127,607.0
145,451.0
227,571.0
252,742.1
264,155.4
276,900.6
290,651.8
305,474.7
321,647.0
341,398.0
361,261.6
382,192.2
403,913.6
$277,636.0
$319,605.0
$533,277.0
$589,731.6
$626,756.5
$668,152.6
$713,326.8
$760,754.6
$812,910.4
$873,541.4
$935,907.6
$1,002,562.2
$1,059,541.5
111,721.0
127,331.0
233,321.0
253,218.9
267,777.8
284,050.8
301,761.8
320,472.2
341,009.4
365,169.4
389,884.9
416,210.0
439,864.8
Occupancy expenses
30,667.0
33,865.0
66,737.0
75,047.3
79,362.2
84,185.1
89,434.1
94,979.4
101,066.0
108,226.4
115,551.4
123,353.5
130,364.1
Other
72,337.0
81,200.0
159,344.0
169,260.3
178,992.0
189,869.5
201,708.1
214,214.8
227,942.5
244,091.9
260,612.6
278,209.3
294,020.9
General and administrative
23,556.0
31,725.0
52,465.0
54,365.3
55,709.2
57,204.6
58,763.4
60,274.5
61,868.0
63,821.4
68,141.0
72,741.9
76,876.1
4,855.0
3,871.0
4,824.0
5,284.3
5,588.1
5,927.7
6,297.3
6,687.8
7,116.4
7,620.5
8,136.3
8,685.7
9,179.3
333.0
115.0
1,371.0
–
–
–
–
–
–
–
–
–
–
1,295.0
2,296.0
2,601.0
–
–
–
–
–
–
–
–
–
32,872.0
39,202.0
12,614.0
Pre-opening costs
Asset impairments and closures
Loss on disposal of property and equip.
EBITDA
$32,555.5
$39,327.3
$46,915.0
$55,362.1
$64,125.9
$73,908.1
$84,611.7
$93,581.3
$103,361.8
–
$109,236.2
16,011.0
18,572.0
27,507.0
28,860.6
29,724.5
31,317.1
33,100.4
35,100.3
37,205.3
39,552.4
42,084.7
44,802.3
47,677.6
16,861.0
20,630.0
(14,893.0)
3,694.9
9,602.7
15,597.9
22,261.7
29,025.6
36,702.8
45,059.3
51,496.6
58,559.5
61,558.7
Interest expense
9,215.0
9,366.0
5,246.0
–
–
–
–
–
–
–
–
–
–
Gain (loss) on insurance settlements
1,126.0
1,161.0
–
–
–
–
–
–
–
–
–
–
(18,978.0)
3,694.9
9,602.7
15,597.9
22,261.7
29,025.6
36,702.8
45,059.3
51,496.6
58,559.5
61,558.7
Depreciation and amortization
EBIT
EBT
Provision for tax (expense) benefit
NO PAT
(799.0)
8,772.0
10,465.0
3,291.0
(1,751.0)
12,393.0
(1,472.4)
(3,778.7)
(6,059.8)
(8,537.4)
(10,986.3)
(13,708.6)
(16,604.5)
(18,719.2)
(20,993.8)
(21,545.5)
8,714.0
(6,585.0)
2,222.4
5,824.0
9,538.1
13,724.3
18,039.3
22,994.2
28,454.8
32,777.4
37,565.8
40,013.1
12,063.0
UOIG 23
January 23rd, 2015
Appendix 5 – Balance Sheet
Balance Sheet
Historical
Year 2011
Year 2012
Cash & equivalents
$3,725.0
Accounts receivable
7,848.0
Inventories
Projection Period
Year 2013
Year 2014
Year 2015
Year 2016
Year 2017
Year 2018
$6,929.0
$972.0
$36,298.2
$25,455.7
$19,753.3
$13,361.9
$12,057.5
6,285.0
14,565.0
16,127.6
17,054.8
18,091.3
19,219.3
20,410.9
4,179.0
4,841.0
9,836.0
10,923.9
11,417.2
11,968.1
12,562.5
905.0
1,615.0
–
–
–
–
5,190.0
4,625.0
16,337.0
18,089.7
19,129.7
20,292.3
Year 2019
Year 2020
Year 2021
Year 2022
Year 2023
$24,873.7
$29,813.4
$38,095.2
$49,379.3
$61,372.0
21,719.0
23,257.7
24,831.9
26,508.5
28,067.6
13,203.1
13,902.1
14,755.8
15,614.3
16,519.0
17,457.8
–
–
–
–
–
–
–
21,557.5
22,894.2
24,361.3
26,087.3
27,852.9
29,733.6
31,423.4
Assets
Deferred tax assets, current
Prepaid rent & other
Total current assets
21,847.0
24,295.0
41,710.0
81,439.4
73,057.5
70,104.9
66,701.2
68,565.8
84,856.1
93,914.2
106,394.4
122,140.4
138,320.8
143,021.0
165,746.0
248,507.0
248,659.1
263,895.4
277,800.0
296,580.1
314,520.3
335,209.0
357,643.6
381,737.0
407,577.4
434,567.3
2,198.0
1,755.0
29,875.0
30,362.3
30,901.4
31,479.8
32,099.3
32,758.7
33,464.8
34,229.5
35,050.4
35,930.4
36,850.5
–
–
6,402.0
6,402.0
6,402.0
6,402.0
6,402.0
6,402.0
6,402.0
6,402.0
6,402.0
6,402.0
6,402.0
Deferred charges, net
4,035.0
1,702.0
–
–
–
–
–
–
–
–
–
–
–
Deferred tax assets
3,741.0
5,043.0
10,678.0
11,823.6
12,503.4
13,263.2
14,090.2
14,963.8
15,922.8
17,050.9
18,204.9
19,434.1
20,538.6
PP&E, net
Intangible assets, net
Goodwill
Other assets
2,993.0
2,897.0
9,912.0
9,912.0
9,912.0
9,912.0
9,912.0
9,912.0
9,912.0
9,912.0
9,912.0
9,912.0
9,912.0
$177,835.0
$201,438.0
$347,084.0
$388,598.4
$396,671.7
$408,961.9
$425,784.7
$447,122.6
$485,766.6
$519,152.2
$557,700.6
$601,396.3
$646,591.3
Accounts payable
$14,157.0
$14,083.0
$35,238.0
$39,135.6
$38,731.7
$38,324.6
$37,838.9
$37,257.9
$36,586.7
$36,027.4
$36,144.0
$36,143.9
$35,984.9
Accrued liabilities
20,390.0
23,068.0
49,259.0
46,240.7
48,899.3
51,870.9
55,105.2
58,521.9
62,272.2
66,684.1
71,197.4
76,004.7
80,324.3
–
–
–
–
–
–
–
–
–
–
–
–
–
3,007.0
–
2,998.0
1,649.5
1,650.0
1,650.0
1,650.0
154,748.5
1,650.0
1,650.0
1,650.0
1,650.0
1,650.0
Total assets
Liabilities & Shareholders' Equity
Income taxes payable
Current portion of debt obligations
Total current liabilities
Long-term debt obligations
Deferred rent
Deferred tax liabilities
Other
Total liabilities
37,554.0
37,151.0
87,495.0
87,025.8
89,281.0
91,845.5
94,594.1
250,528.3
100,508.9
104,361.5
108,991.5
113,798.6
117,959.2
114,750.0
45,000.0
128,984.0
159,698.5
158,048.5
156,398.5
154,748.5
–
163,350.0
161,700.0
160,050.0
158,400.0
156,750.0
8,554.0
11,744.0
19,548.0
28,594.7
30,238.7
32,076.3
34,076.3
36,189.2
38,508.4
41,236.6
44,027.6
47,000.4
49,671.6
–
–
–
–
–
–
–
–
–
–
–
–
–
1,178.0
1,326.0
9,450.0
9,450.0
9,450.0
9,450.0
9,450.0
9,450.0
9,450.0
9,450.0
9,450.0
9,450.0
9,450.0
333,830.8
162,036.0
95,221.0
245,477.0
284,768.9
287,018.2
289,770.4
292,868.9
296,167.5
311,817.3
316,748.1
322,519.1
328,649.0
Common stock, par value
192.0
256.0
256.0
256.0
256.0
256.0
256.0
256.0
256.0
256.0
256.0
256.0
256.0
Additional paid-in capital
4,088.0
85,728.0
87,703.0
87,703.0
87,703.0
87,703.0
87,703.0
87,703.0
87,703.0
87,703.0
87,703.0
87,703.0
87,703.0
11,519.0
20,233.0
13,648.0
15,870.4
21,694.5
31,232.5
44,956.8
62,996.1
85,990.3
114,445.1
147,222.6
184,788.3
224,801.5
–
–
–
–
–
–
–
–
–
–
–
–
–
15,799.0
106,217.0
101,607.0
103,829.4
109,653.5
119,191.5
132,915.8
150,955.1
173,949.3
202,404.1
235,181.6
272,747.3
312,760.5
$177,835.0
$201,438.0
$347,084.0
$388,598.4
$396,671.7
$408,961.9
$425,784.7
$447,122.6
$485,766.6
$519,152.2
$557,700.6
$601,396.3
$646,591.3
Accumulated earnings
Accumulated other comprehensive loss
Total Equity
Liabilities & shareholders' equity
UOIG 24
January 23rd, 2015
Appendix 6 – Statement of Cash Flows
Cash Flow State me nt
Historical
Proje ction Pe riod
Ye ar 2011
Ye ar 2012
Ye ar 2013
Ye ar 2014
Ye ar 2015
Ye ar 2016
Ye ar 2017
Ye ar 2018
$12,063.0
$8,714.0
($6,585.0)
$2,222.4
$5,824.0
$9,538.1
$13,724.3
$18,039.3
16,011.0
18,572.0
27,507.0
28,860.6
29,724.5
31,317.1
33,100.4
35,100.3
2,270.0
4,058.0
1,095.0
–
–
–
–
Amortization of debt discount
–
–
–
–
–
–
Asset impairment
–
47.0
682.0
–
–
36.0
628.0
1,954.0
–
–
Ye ar 2019
Ye ar 2020
Ye ar 2021
Ye ar 2022
Ye ar 2023
$22,994.2
$28,454.8
$32,777.4
$37,565.8
$40,013.1
37,205.3
39,552.4
42,084.7
44,802.3
47,677.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
O pe rating Activitie s
Net income
Depreciation & amortization
Amortization of debt issuance costs
Stock-based compensation
Deferred income tax
(4,646.0)
Gain on insurance related to P&E
(1,126.0)
Non-cash loss on disposal of assets
1,269.0
(2,012.0)
397.0
2,245.0
(12,866.0)
(681.0)
2,307.0
(1,145.6)
(679.8)
(759.8)
(827.0)
(873.6)
(958.9)
(1,128.1)
(1,154.0)
–
(1,229.2)
(1,104.5)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Decrease (increase) in assets
Accounts receivable
(2,389.0)
439.0
(4,466.0)
(1,562.6)
(927.3)
(1,036.4)
(1,128.0)
(1,191.7)
(1,308.0)
(1,538.8)
(1,574.1)
(1,676.7)
(662.0)
(1,205.0)
(1,087.9)
(493.3)
(550.9)
(594.3)
(640.7)
(699.0)
(853.7)
(858.5)
(904.7)
(938.8)
1,768.0
(1,197.0)
(1,752.7)
(1,040.1)
(1,162.5)
(1,265.2)
(1,336.7)
(1,467.1)
(1,726.0)
(1,765.6)
(1,880.6)
(1,689.9)
8,296.0
3,099.0
3,248.0
879.3
2,254.7
2,564.5
2,748.5
2,835.7
3,079.1
3,852.5
4,630.0
4,807.2
4,160.6
3,239.0
3,339.0
7,126.0
9,046.7
1,644.1
1,837.6
2,000.0
2,112.9
2,319.1
2,728.3
2,791.0
2,972.8
2,671.2
$32,279.0
$40,632.0
$16,919.0
$35,460.2
$36,306.9
$41,747.6
$47,758.6
$54,045.6
$61,164.7
$69,341.4
$76,930.7
$84,456.8
$89,230.2
Inventories
(212.0)
Other assets
(2,532.0)
Accounts payable and accrued liabilities
Other liabilities
(1,559.1)
Increase (decrease) in liabilities
Cash flow from ope rating activitie s
Inve sting Activitie s
Acquisitions
Purchases of property and equipment
Proceeds from property insurance claims
Proceeds from disposal of assets
Purchases of intangible assets
–
(39,442.0)
–
(44,226.0)
(55,288.0)
(51,364.0)
–
(28,146.9)
–
(44,069.1)
–
(44,282.1)
–
(50,887.5)
–
(51,987.5)
–
(56,777.8)
–
(60,800.4)
–
(64,915.5)
–
–
(69,298.6)
281.0
1,341.0
681.0
–
–
–
–
–
–
–
–
–
4.0
28.0
58.0
–
–
–
–
–
–
–
–
–
(73,237.1)
–
–
(222.0)
(1,155.0)
(1,222.0)
($1,353.1)
($1,430.9)
($1,517.9)
($1,612.5)
($1,712.5)
($1,822.2)
($1,951.3)
($2,083.4)
($2,224.1)
($2,350.5)
($39,379.0)
($44,012.0)
($107,135.0)
($29,500.0)
($45,500.0)
($45,800.0)
($52,500.0)
($53,700.0)
($58,600.0)
($62,751.7)
($66,998.9)
($71,522.7)
($75,587.6)
Intial public offering
–
81,124.0
–
–
–
–
–
–
–
–
–
–
–
Borrowings on revovling credit facility, net
–
45,000.0
40,207.0
–
–
–
–
–
–
–
–
–
(117,750.0)
46,775.0
29,366.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Cash flow from inve sting activitie s
Financing Activitie s
Proceeds from long-term debt, net
Payments on capital leases
Debt issuance costs paid
Dividends
82,954.0
(30.0)
(7.0)
(4,671.0)
(1,735.0)
(80,000.0)
Capital Contribution
–
T axes paid for equity awards
–
Cash flow from financing activitie s
($1,747.0)
Net increase in cash and equivalents
($8,847.0)
Cash cash e quivale nts at be ginning of pe riod $12,572.0
Cash cash e quivale nts at e nd of pe riod
3,725.0
(2,744.0)
(1,649.5)
(1,650.0)
(1,650.0)
(1,650.0)
10,251.5
(1,650.0)
(1,650.0)
–
(1,650.0)
(1,650.0)
–
–
–
–
–
–
–
–
–
–
–
–
–
23.0
–
–
–
–
–
–
–
–
–
–
(2.0)
–
–
–
–
–
–
–
–
–
–
($1,650.0)
($1,650.0)
($1,650.0)
$10,251.5
($1,650.0)
($1,650.0)
($1,650.0)
($1,650.0)
(48.0)
$6,584.0
$84,259.0
$29,366.0
($1,649.5)
$35,326.2
$3,204.0
($5,957.0)
($10,842.6)
($5,702.4)
($6,391.4)
($1,304.4)
$12,816.2
$4,939.7
$8,281.8
$11,284.1
$11,992.6
$3,725.0
$6,929.0
$972.0
$36,298.2
$25,455.7
$19,753.3
$13,361.9
$12,057.5
$24,873.7
$29,813.4
$38,095.2
$49,379.3
6,929.0
972.0
36,298.2
25,455.7
19,753.3
13,361.9
12,057.5
24,873.7
29,813.4
38,095.2
49,379.3
61,372.0
UOIG 25
January 23rd, 2015
Appendix 5 – Discounted Cash Flows Valuation Assumptions, Statement of Retained Earnings & Final Valuation
Discounted Free Cash Flow Assumptions
Tax Rate
Weighting
Beta
Considerations
Company
35.00% Terminal Growth Rate
3.00%
D/E
Tax Rate
Cash (% of FV) Unlevered
Comparable Companies
Risk Free Rate
1.91% Terminal Value
619,751
BWLD
16.67%
1.09
0.00
30%
4.08%
1.14
Terminal Risk Free Rate
2.49% PV of Terminal Value
355,944
BJRI
16.67%
0.91
0.00
16%
2.41%
0.93
27,480
DRI
16.67%
0.93
127.78
-5%
0.93%
0.01
5.75% Firm Value
383,424
DIN
16.67%
0.94
438.17
35%
3.22%
0.00
% Equity
54.05% Total Debt
159,699
T XRH
16.67%
0.92
8.72
29%
3.68%
0.13
% Debt
45.95% Market Capitalization
223,726
CAKE
16.67%
0.89
11.47
27%
2.13%
0.10
Cost of Debt
5.52% Fully Diluted Shares
26,200
CMG
0.00%
1.09
0.00
39%
2.70%
1.12
CAPM
5.93% Implied Price
$8.54
Industry Unlevered Beta
Terminal CAPM
6.51% Current Price
$7.17
IRG
0.77
1.30
65%
0.74%
WACC
4.86% Undervalued
19.10%
Terminal WACC
5.17%
Beta
0.70 Sum of PV Free Cash Flows
Market Risk Premium
IRG Hamada Beta
0.55
Beta
Standard Error Weighting
1 Year Daily
0.90
0.26
0%
Since Public
0.77
0.15
67%
Hamada
0.55
Beta
Statement of accumulated earnings
0.38
33%
0.70
Year 2011
Year 2012
Year 2013
Year 2014
Year 2015
Year 2016
Year 2017
Year 2018
Year 2019
Year 2020
Year 2021
Year 2022
Year 2023
Beginning balance
6,076.0
11,519.0
20,233.0
13,648.0
15,870.4
21,694.5
31,232.5
44,956.8
62,996.1
85,990.3
114,445.1
147,222.6
184,788.3
NOPAT
12,063.0
8,714.0
(6,585.0)
2,222.4
5,824.0
9,538.1
13,724.3
18,039.3
22,994.2
28,454.8
32,777.4
37,565.8
40,013.1
Dividends
(6,620.0)
Accumulated earnings
11,519.0
–
–
–
–
–
–
–
–
–
–
–
–
20,233.0
13,648.0
15,870.4
21,694.5
31,232.5
44,956.8
62,996.1
85,990.3
114,445.1
147,222.6
184,788.3
224,801.5
Final Valuation
Price
Weight
Discounted Cash Flows Analysis
$8.54
90%
Forward Comparable Companies Analysis
$10.11
10%
Implied Price
$8.70
Current Price
$7.17
Overvalued
21.28%
UOIG 26
January 23rd, 2015
Appendix 6 –Sensitivity Analysis
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
9
2.0%
2.5%
3.0%
3.5%
4.0%
19.1%
2.0%
2.5%
3.0%
3.5%
4.0%
0.50
$7.24
$10.29
$15.33
$25.16
$52.90
0.50
0.92%
43.57%
113.77%
250.89%
637.80%
0.60
$5.53
$7.83
$11.36
$17.49
$30.76
0.60
(22.88%)
9.17%
58.45%
143.97%
328.98%
0.70
$4.16
$5.94
$8.54
$12.69
$20.39
0.70
(41.93%)
(17.13%)
19.10%
77.00%
184.38%
0.80
$3.05
$4.46
$6.43
$9.41
$14.39
0.80
(57.49%)
(37.85%)
(10.29%)
31.18%
100.64%
0.90
$2.12
$3.26
$4.80
$7.02
$10.47
0.90
(70.43%)
(54.57%)
(33.04%)
(2.11%)
46.08%
Adjusted Beta
Adjusted Beta
Implied Price
Undervalued/(Overvalued)
2.0%
2.5%
3.0%
3.5%
4.0%
19.1%
2.0%
2.5%
3.0%
3.5%
4.0%
2.86%
$4.35
$6.13
$8.73
$12.88
$20.58
2.86%
(39.33%)
(14.53%)
21.70%
79.60%
186.98%
3.86%
$4.25
$6.03
$8.63
$12.78
$20.48
3.86%
(40.69%)
(15.90%)
20.33%
78.24%
185.61%
4.86%
$4.16
$5.94
$8.54
$12.69
$20.39
4.86%
(41.93%)
(17.13%)
19.10%
77.00%
184.38%
5.86%
$4.08
$5.86
$8.46
$12.61
$20.31
5.86%
(43.04%)
(18.24%)
17.98%
75.89%
183.27%
6.86%
$4.01
$5.79
$8.39
$12.54
$20.24
6.86%
(44.05%)
(19.25%)
16.97%
74.88%
182.26%
WACC
WACC
9
Implied Price
Additional Senstivity Tables
9
2.3%
2.3%
3.0%
3.8%
4.5%
0
4.75%
6.97
6.97
12.10
24.63
101.46
4.75%
5.25%
5.90
5.90
10.15
19.57
58.35
5.25%
5.75%
4.98
4.98
8.54
15.86
39.57
5.75%
6.25%
4.17
4.17
7.19
13.03
29.06
6.75%
3.45
3.45
6.04
10.80
22.34
Market Risk
Premium
Market Risk
Premium
2.3%
2.3%
3.0%
3.8%
4.5%
1.53%
1.53%
66.02%
223.32% 1187.70%
(11.83%)
(11.83%)
41.49%
159.78%
646.58%
(23.43%)
(23.43%)
21.28%
113.22%
410.80%
6.25%
(33.59%)
(33.59%)
4.35%
77.65%
278.86%
6.75%
(42.56%)
(42.56%)
(10.04%)
49.61%
194.58%
UOIG 27
January 23rd, 2015
Appendix 8 – Sources
Factset
IBIS World
Ignite Restaurant Group SEC Filings
Ignite Restaurant Group Investor Relations
Igniterestaurants.com
Securities Exchange Commission
Seeking Alpha
Yahoo! Finance
UOIG 28

Ignite Restaurant Group, Inc. - University of Oregon Investment Group

Transcription

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